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Archive for the ‘Big Government’ Category

Remember when I wrote about a week ago that I was somewhat optimistic about entitlement reform?

Well, given what just happened in New Hampshire, I must have been smoking crack. It would now be more accurate to say something will happen with entitlements, but it will be deform rather than reform.

That’s because a Bernie Sanders nomination victory followed by a win in November might pave the way for a massive expansion of government. Much of this would be a result of a single-payer healthcare scheme (oh, and don’t forget that the Republican victor in New Hampshire also has endorsed government-run healthcare).

Now that we have to take Senator Sanders seriously, let’s investigate his agenda.

Holman Jenkins of the Wall Street Journal is not a fan of the Vermont Senator’s statism.

His socialism is farcical in a country that can’t afford the entitlements it already has. …Mr. Sanders, far from being a radical departure, is merely a perfection of what Democrats have offered since the Clinton era, namely denial. Ignore the problem. If forced to acknowledge it, insist there’s no problem because the rich will pay. In the meantime, savage every reform proposal as an attack on “unmet needs.” Collect the political rents from serving as defender of every spending interest in our overcommitted republic. …Bernie…, for all his exotic pretenses, is just another machine Democrat.

I think Holman nails it. Sanders’ socialism is just a gimmick. He just a standard-issue redistributionist, and he doesn’t even have any idea of how to finance those empty promises.

Like many other leftists, Sanders presumably knows that “taxing the rich” doesn’t work because they can alter their behavior.

As Europe demonstrates, the only way to finance large government is to have big tax burdens on ordinary people.

Yes, Sanders endorses a few tax hikes on the middle class, but mostly he relies on unicorns and fairy dust.

Consider, for instance, his very prominent proposal for a single-payer health system. Avik Roy of Forbes digs into the details.

In Sanders’ eight-page campaign white paper, entitled “Medicare for All,” the self-described “democratic socialist” outlines his plan’s core principles. The plan would effectively abolish the private health insurance industry… Berniecare would also abolish cost-sharing by patients; i.e., no co-pays, deductibles, or coinsurance payments, and minimal premiums. …Berniecare would also abolish cost-sharing by patients; i.e., no co-pays, deductibles, or coinsurance payments, and minimal premiums.

And what would all this cost?

Citing estimates prepared by Gerald Friedman, an economist retained by the Sanders campaign, Avik finds the numbers very unconvincing.

…even by Friedman’s own optimistic projections about what single-payer health care could save, Berniecare would increase federal spending by $28.3 trillion over ten years. If Friedman is wrong, and the plan fails to reduce the growth of health care spending, it would result in $32.7 trillion in new federal spending. The Congressional Budget Office projects that total federal spending from 2017 to 2026, under current law, will exceed $51 trillion. So, under Friedman’s rosy scenario, Sanders’ health care plan would increase federal spending by an astounding 55 percent. If the promised savings fail to materialize, it would increase federal spending by 64 percent—or more.

That’s a huge expansion in the burden of government, even by Washington standards.

But Avik may be an optimist.

Also writing for Forbes, Professor Chris Conover of Duke thinks the spending increase would be even larger.

the actual cost of the Sanders health plan will be at least 40% more than he claims. In the worst case, it will be 49% higher….In short, the Sanders health plan would require a 71% increase in federal spending over the next decade. …everyone with even a passing knowledge of economics knows that if you lower the cost of something, demand for it will increase.

Based on a RAND Corporation study, he looks at behavioral responses.

So the empirical question is how much of an increase in demand to expect from this expansion in coverage. …The HIE demonstrated convincingly that among those with “free” health of the sort being proposed by Senator Sanders–i.e., zero copays or deductibles–health spending was 32% higher compared to those who had been randomly assigned to a cost-sharing plan having no deductible but required patients to pay 25% of every bill up to a maximum out-of-pocket limit of $1,000 (about $1,972 in 2016 dollars. …the RAND study showed the actual figure will be more than 10 times that amount. Correcting this error adds $12 trillion to the cost of the Sanders plan (whoops!).

In effect, Conover is generating more accurate numbers based on dynamic analysis (in the same way advocates of dynamic scoring try to fix mistakes in revenue estimates that assume no behavioral responses).

He includes a pie chart is his column so readers can get a sense of proportion.

By the way, guess what? All the new spending will mean lots of new taxes.

…the actual increase in federal taxes required by the Sanders plan is $28 trillion over 10 years, not the $13.8 trillion originally estimated by Prof. Friedman. When we further adjust this figure to more realistically account for higher demand due to moral hazard, the figure comes to $36.3 trillion

Yet if you look at all the new taxes proposed by Senator Sanders (including those designed to finance other expansions of government), the total is nowhere near $28 trillion or $36 trillion.

So when you look at this horrifying list, which the Washington Examiner estimates is a 47 percent increase in the tax burden, keep in mind that the actual increase would be larger and more pervasive.

And we shouldn’t forget that Senator Sanders wants lots of spending in other areas, not just government-run healthcare.

So everything you’ve already read is actually the best-case scenario.

P.S. These images (here, here, and here) tell you everything you need to know about socialism/statism vs markets/liberty.

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We have good news and bad news.

The good news is that President Obama has unveiled his final budget.

The bad news is that it’s a roadmap for an ever-growing burden of government spending. Here are the relevant details.

  • The President wants the federal budget to climb by nearly $1.2 trillion over the next five years.
  • Annual spending would jump by an average of about $235 billion per year.
  • The burden of government spending would rise more than twice as fast as inflation.
  • By 2021, federal government outlays will consume 22.4% of GDP, up from 20.4% of economic output in 2014.

I guess the President doesn’t have any interest in complying with Mitchell’s Golden Rule, huh?

While all this spending is disturbing (should we really step on the accelerator as we approach the Greek fiscal cliff?), the part of this budget that’s really galling is the enormous tax increase on oil.

As acknowledged in a report by USA Today, this means a big tax hike on ordinary Americans (for what it’s worth, remember that Obama promised never to raise their taxes).

Consumers will likely pay the price for President Obama’s proposed $10 tax per-barrel of oil, an administration official and a prominent analyst said Thursday. Energy companies will simply pass along the cost to consumers, Patrick DeHaan, senior petroleum analyst for GasBuddy.com, which tracks gas prices nationwide, said in an interview with USA TODAY. ….a 15-gallon fill-up would cost at least $2.76 more per day.  It would also affect people who use heating oil to warm their homes and diesel to fill their trucks.

Isn’t that wonderful. We’ll pay more to fill our tanks and heat our homes, and we’ll also pay more for everything that has oil as an input.

While middle-class consumers will see a big hit on their wallet, the Washington Post explains that Obama wants the new tax revenue to fund an orgy of special-interest spending.

…the tax would raise about $65 billion a year when fully phased in. …The administration said it would devote $20 billion of the money raised to expand transit systems in cities, suburbs and rural areas; make high-speed rail a viable alternative to flying in major regional corridors and invest in new rail technologies like maglev; modernize the nation’s freight system; and expand the Transportation Investment Generating Economic Recovery program launched in the 2009 economic stimulus bill to support local projects. …The budget would also use roughly $10 billion per year in revenues for shifting how local and state governments design regional transportation projects. Obama would also propose investing just over $2 billion per year in “smart, clean vehicles” and aircraft.

More railway money pits and Solyndra-style boondoggles? Gee, what could go wrong?

By the way, the Administration is claiming that the big new energy tax won’t really hurt our pocketbooks because oil prices have been falling. Here are parts of a story by the Washington Examiner.

President Obama said the oil supply glut that has forced prices down to about $30 a barrel makes his proposal to levy a $10 per-barrel tax on crude oil timely. …the White House appears to be of the view that consumers would have an easier time paying it during record low prices.

Gee, how thoughtful of them.

But is anybody under the illusion that the politicians in Washington will repeal the tax when energy prices rise?

Anybody? Bueller?

Here’s one last gem. As cited by the Los Angeles Times, the President offered this pithy statement.

“Rather than subsidize the past, we should invest in the future,” Obama said during his weekly Saturday address.

Now think about what he’s saying. Obama wants us to believe that the absence of a tax today and in the past is actually a subsidy!

Not that we should be surprised. Our friends on the left have a strange habit of arguing that we’re getting a subsidy when we’re allowed to keep our own money. Indeed, they even have a concept called “tax expenditures” that is based on that perverse notion.

P.S. The folks at Politico have a story about Obama’s plan, and there’s a bit of speculation about how it could become an issue for Hillary Clinton in the 2016 presidential race.

…the proposal could be particularly awkward for Hillary Clinton, who has embraced most of Obama’s policies but has also vowed to oppose any tax hikes on families earning less than $250,000 a year.

I think this analysis is absurd.

Hillary will promise all through the campaign that she opposes tax hikes on everyone other than the rich. But then, just like Obama, she’ll break that promise if she gets to the White House.

P.P.S. Lest anyone think I’m taking a partisan jab at Hillary because she’s a Democrat, keep in mind that I’m terrified that Republicans may decide (not withstanding their “dead on arrival” comments) to like Obama’s scheme. After all, many of them last year were very tempted by gas tax hikes to fund more pork-barrel spending.

P.P.P.S. And what’s really depressing is that I explained just last month that it would be very simple to shrink the relative burden government (and also balance the budget very quickly if that’s what you care about) if the federal budget “only” grew by the rate of inflation.

P.P.P.P.S. One final comment is that I might be tempted to accept an oil tax in exchange for the abolition of a tax – perhaps the death tax or capital gains tax – that collects a similar amount of revenue.

But I’d have two condition: First, the net result has to be a tax system that is less destructive to prosperity. Second, I’d have to be convinced that the swap wouldn’t backfire, with politicians somehow winding up with more power and/or money when the dust settles (which has been my concern about the Rand Paul and Ted Cruz plans to impose a value-added tax, even though their plans theoretically would produce a much less destructive tax system).

P.P.P.P.P.S. Oops, several people have reminded me that I forgot to include predictions for New Hampshire. These are only worth what you’re paying for them (in other words, nothing).

Trump  31
Kasich  17
Bush     12
Rubio   11
Cruz     10
Christie  7
Fiorina   5
Carson   4

Sanders   57
Clinton    42

Given what he did to expand Medicaid dependency in Ohio, I’m not sure I’m happy about Kasich’s strong showing. On the other hand, he played a key role in the spending restraint of the 1990s.

Since Hillary and Bernie are two peas in a pod, I have no strong thoughts about that race.

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The left is very clever about accepting “compromise,” so long as the result is a larger burden of government.

This is one of the reasons why I’m so concerned about Senator Cruz’s proposal for a value-added tax. Even though he wants a VAT for good reasons (to finance lower tax rates and also to reduce the tax bias against saving and investment), my fear is that the statists will say yes, then quickly use the VAT to finance a big expansion of the welfare state.

Which is exactly what happened in Europe.

Some folks think I’m being paranoid, to which there are two responses. First, there’s the old joke that even paranoid people have enemies.

But the second and more serious response is to point out that lots of statists openly say they want a VAT to make government bigger.

Indeed, some of these folks already are semi-embracing Cruz’s VAT because of their desire to have a new source of revenue for Washington. Consider, for instance, these excerpts from an editorial in USA Today.

The VAT is a kind of national sales tax used by virtually every other nation in the world because it can raise lots of money …partly because deficits are set to explode again as Baby Boomers retire, the VAT is back. Texas Republican Ted Cruz, winner of the Iowa GOP caucuses, is proposing a VAT… The concept has a lot going for it. …Cruz’s plan is flawed, but he’s on to something. A more progressive, phased-in VAT deserves to be part of any future conversation

You don’t have to read between the lines to understand that the editors at USA Today want a VAT to expand the public sector. The editorial even favorably cites Senator Cardin and former Treasury official Michael Graetz.

Do they want a VAT for the same reasons as Senator Cruz?

Not exactly. Senator Cardin acknowledges that the VAT could lead to a spigot of new tax revenue (“enacting a consumption tax could mean enacting a new and easy-to-adjust lever to raise taxes irresponsibly”), but he claims to have a mechanism that supposedly will guard against ever-higher tax burdens.

The Progressive Consumption Tax Act addresses this concern with a circuit breaker that returns overages from the PCT to taxpayers when revenues exceed predetermined levels.

This is a joke. The politicians in Washington get to set the “predetermined levels,” so it goes without saying that those levels will go from predetermined to redetermined in a blink of an eye, just as we’ve seen in other nations.

And what about Michael Graetz’s plan? Well, here are a few excerpts from an article he wrote.

…tax increases will be necessary to…address the nation’s unsustainable fiscal condition fairly… With this plan in place, our ability to raise additional revenue would be increased…

To be fair, Graetz is not a leftist. He basically wants a VAT because it’s a less-destructive way of financing bigger government.

I agree. It’s highly likely that a $100 billion VAT hike would do less damage than a $100 billion increase in income taxes, but why on earth would anyone want higher taxes to fund bigger government, particularly when we know sensible entitlement reforms could fix the nation’s long-run fiscal problem?

No wonder Avik Roy, writing for Forbes, is so worried about a VAT.

Sen. Ted Cruz…favors replacing the corporate income tax with what Cruz calls a “business flat tax,” and what Canadians and Europeans call a “value-added tax.” But the real debate isn’t about terminology; it’s about whether or not Cruz’s approach would drive an explosion of government taxes—and spending—over the mid- to long-term.

One reason it’s a money machine is that it’s actually a hidden tax on wages and salaries.

…businesses would no longer be able to deduct the cost of labor. As my colleague Ryan Ellis has detailed, that amounts to a “16 percent wage tax withheld at the employer level under the Cruz plan.”

And that creates a very large tax base, so any increase in the tax rate transfers a lot of money from the private sector to Washington.

…the most important problem with the Cruz plan is how Democrats would take advantage of it. Cruz envisions a VAT tax rate of 16 percent. But his plan would hand progressives a simple tool to raise taxes to far higher rates in the future. …the vast majority of federal revenue will hit voters indirectly, because it will come from businesses. From a political standpoint, Cruz’s plan would pave the way to higher tax rates in the future. …every one percent increase in the VAT would yield $1.6 trillion in new revenue over a decade. The temptation for a Democratic president and Congress to raise VAT rates to higher levels will be enormous.

And Avik echoes one of my concerns, warning that a VAT will greatly undermine and perhaps even kill any opportunity for genuine entitlement reform.

Under Cruz’s tax system, there would be absolutely no pressure on Washington to reform Medicare and Medicaid. Why reform entitlements when you can simply increase the “business flat tax” rate from 16 percent to 17 percent to 18 percent to 19 percent? This is exactly what has happened in Canada and Europe, where VAT rates started out low, and have gone up and up over time.

I should point out (as he does in his column) that Avik supports Marco Rubio, so he has a political motive to trash the VAT.

Indeed, he even makes some anti-VAT arguments that strike me as unfair, so I’ve omitted them from this analysis.

But the parts I have shared are completely accurate and they are more than adequate to make a very powerful case against giving Washington a new source of revenue.

Let’s close with some wisdom from the 1980s. I wrote that one of America’s worst presidents wanted a VAT to expand the welfare state. And I also mentioned that one of the best presidents in American history was on the right side of the issue. And it’s worth listening to the Gipper’s wisdom on this issue.

P.S. Here’s a short update to my recent post about the craziness of Keynesian economics. You may recall that the economic illiterates at the International Monetary Fund said diverting money from the private sector to finance government outlays on refugees would be good for growth.

Well, we now have estimates of how much will be spent on this so-called stimulus.

Shelter, medical care and integration policies for refugees will cost the German state €22 billion in 2016, and €27.6 billion in 2017.

Gee, according to the perpetual motion machine of Keynesianism, maybe the German government should put the entire population on welfare and the economy will really boom.

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Once again, I threw myself on a proverbial grenade. Yes, that means I watched politicians last night as part of the Cato Institute’s live-tweeting about issues that were raised (or not raised) in the CNN Townhall featuring Bernie Sanders and Hillary Clinton.

Although painful, this exercise enabled me to share my thoughts on topics such as corporate inversions, Planned Parenthood, government-run healthcare, Obamanomics, and the morality (or lack thereof) of government-coerced redistribution.

But one issue I neglected was campaign finance, which was an oversight since both Sanders and Clinton made a big deal about the ostensibly corrupting mix of money and politics.

I confess that their arguments were somewhat seductive. After all, corrupt ethanol handouts and the cronyist Export-Import Bank only exist because politicians easily can raise tens of thousands of dollars by voting yes for these boondoggles.

Moreover, a law professor from the University of Minnesota made “The Conservative Case for Campaign-Finance Reform” yesterday in the New York Times. Here’s some of what Richard Painter wrote.

…big money in politics encourages big government. Campaign contributions drive spending on earmarks and other wasteful programs — bridges to nowhere, contracts for equipment the military does not need, solar energy companies that go bankrupt on the government’s dime… When politicians are dependent on campaign money from contractors and lobbyists, they’re incapable of holding spending programs to account. Campaign contributions also breed more regulation. Companies in heavily regulated industries such as banking, health care and energy are among the largest contributors. Such companies donate with the hope of winning narrowly tailored exceptions to regulations that help them and disadvantage their competitors. …conservatives…need to drive the big spenders out of the temples of our democracy.

I have no idea if Mr. Painter actually is a conservative, but he makes a superficially compelling case.

But then I remind myself of a very important point. The sun doesn’t rise because roosters crow. It’s the other way around. What Mr. Painter fails to understand is that there’s a lot of money in politics for the simple reason that government has massive powers to tax, spend, and regulate.

Politicians in Washington every year redistribute more than $4 trillion, so interest groups have an incentive to “invest” money in campaigns so they can get some of that loot. Those politicians have created a 75,000-page tax code that is a Byzantine web of special preferences, so interest groups have an incentive to “invest” money in campaigns so they get favorable treatment. And the politicians also have created a massive regulatory morass, so interest groups have an incentive to “invest” so that red tape can be used to create an unlevel playing field for their advantage.

By the way, I’m not saying that campaign contributions are improper, or even necessarily bad.

After all, political speech (and the money that makes it meaningful) is protected by the 1st Amendment. Moreover, some people give money simply for reasons of self defense. They’re not looking for handouts of favoritism, but rather are giving money in hopes that politicians will leave them alone.

Instead, I’m simply making the point that big government is what encourages unseemly and/or corrupt political contributions.

If I’m allowed to shift to a new metaphor, Sanders and Clinton make the mistake of putting the cart of campaign finance in front of the horse of big government.

There’s a great column in today’s Wall Street Journal on this topic. It’s motivated by corruption scandals in New York, but the lessons apply equally to Washington. Here’s some of what Tom Shanahan wrote.

…whenever a public official is found guilty of wrongdoing, there’s a call for new laws. Logic cannot explain the impulse. …If they’re not obeying the laws we already have, what makes anyone believe new statutes will change that? …a host of “good government” groups, such the New York Public Interest Research Group, proposed making the legislature a “full-time job” by limiting outside income.

Mr. Shanahan suspect these reforms will backfire.

That’s a major problem for limiting the size of government. An analysis of “The Length of Legislative Sessions and the Growth of Government” byMwangi S. Kimenyi and Robert D. Tollison, in a 1995 article in Rationality and Society, demonstrated that the more time Congress spent in session, the more bills were enacted, and the more expensive government grew. …A legislator with other work also has a better understanding of the economic conditions confronting the public than one who subsists on a government check. …Legislators with outside incomes are less susceptible to the pay-to-play temptation of campaign contributions. When your sole source of income is the public office you hold, the incentive is far greater to do anything necessary to get re-elected.

So here’s the bottom line is that there’s no reason to think new laws will reduce corruption. Indeed, more rules will probably lead to more sleaze since politicians will have an even greater incentive to exploit their positions of power.

The people who will get hurt, however, are the ordinary citizens who already lose out from the current system.

New York continues to suffer a net migration of citizens to other states, as people flee a growing tax burden. The last thing the state needs is a legislature working full time to spend even more taxpayer money.

By the way, I’m not under the illusion that “money in politics” is a solution. I’m simply saying that new rules about campaign finance and ethics won’t have any impact on sleaze and corruption.

Which is my message in this video from the Center for Freedom and Prosperity.

Allow me to make one final point on this issue. I think the proponents of further regulation and control in some cases have good intentions, but they are being extremely naive. Why would anybody think that politicians would approve rules unless the net effect was to increase the powers of incumbency?

Since I shared my video on the topic, I’ll close by strongly recommending that you watch this George Will video.

P.S. I warned last month that governments were engaged in a war on cash. Well, the Germans are planning a Blitzkrieg.

The German government is considering introducing a limit of 5,000 euros ($5,450) on cash transactions in an effort to combat money laundering and financing of terrorism. Deputy finance minister Michael Meister said Wednesday that…there’s “…we also have the problem of how to clear up money-laundering offenses properly” when large transactions are conducted anonymously. …Opposition Green Party lawmaker Konstantin von Notz tweeted that trying to limit cash payments “is a new fundamental attack on data protection and privacy.”

Since criminals will be modestly inconvenienced – at best – by such an initiative, it’s important to understand the real goal is easier tax collection. Indeed, I suspect Herr von Notz will change his tune once he realizes that the German government will get more money to waste if cash is restricted.

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Because I don’t like their plans for a value-added tax, some people seem to think that I am politically opposed to Rand Paul and Ted Cruz.

That’s not true. Both Senators are generally strong proponents of free markets and limited government, so the fact that they have one bad policy position shouldn’t a disqualifying characteristic.

But since I’m a policy wonk (and because I work at a non-profit think tank), it’s not my role to tell people how to vote anyhow. Instead, my niche in life is to analyze policy proposals. And if that means I say something nice about a politician who is normally bad, or something critical of a politician who is normally good, so be it.

In other words, nothing I write is because I want readers to vote for or vote against particular candidates. I write to educate and inform.

With all those caveats out of the way, let’s look at the federal government’s odious handouts for the ethanol industry, a very important issue where Rand Paul and Ted Cruz unambiguously are on the side of the angels.

My colleague Doug Bandow summarizes the issue nicely in a column for Newsweek.

Senator Ted Cruz has broken ranks to criticize farmers’ welfare. …Senator Rand Paul also rejects the conventional wisdom…the Renewable Fuel Standard, which requires blending ethanol with gasoline, operates as a huge industry subsidy. Robert Bryce of the Manhattan Institute figured the requirement cost drivers more than $10 billion since 2007. …Ethanol has only about two-thirds of the energy content of gasoline. Given the energy necessary to produce ethanol—fuel tractors, make fertilizer and distill alcohol, for instance—ethanol actually may consume more in fossil fuels than the energy it yields. The ethanol lobby claims using this inferior fuel nevertheless promotes “energy independence.” However, …the price of this energy “insurance” is wildly excessive. …”By creating an artificial energy demand for corn—40 percent of the existing supply goes for ethanol—Uncle Sam also is raising food prices. This obviously makes it harder for poor people to feed themselves, and raises costs for those seeking to help them.” Nor does ethanol welfare yield an environmental benefit, as claimed. In fact, ethanol is bad for the planet. …Ethanol is a bad deal by any standard. Whomever Iowans support for president, King Ethanol deserves a bout of regicide.

Here’s some of the Wall Street Journal’s editorial on the topic.

Mr. Cruz does deserve support in Iowa for…his…lonely opposition to the renewable fuel standard that mandates ethanol use and enriches producers in the Hawkeye State. The Senator refused to bow before King Ethanol last year, and he’s mostly held fast even though Iowa is where anti-subsidy Republicans typically go to repent. …the Texan is right that ethanol is one of America’s worst corporate-welfare cases. The mandate flows in higher profits to a handful of ethanol producers and keeps the price of corn artificially high, all other demand being equal. This raises the price of food. Al Gore and the greens once supported ethanol but gave up on it when studies showed it did nothing for the environment because of the energy expended in its production. So for those of you keeping track of this outsider feud on your establishment scorecards, mark ethanol as one for Mr. Cruz. In this case he’s standing on principle.

Not only does it raise the price of food, Washington’s mandate for ethanol use (the “renewable fuels standard”) means higher prices for motorists.

Here are the key findings on the topic from the Congressional Budget Office.

While Senators Cruz and Paul are fighting on the right side, Donald Trump is cravenly bowing to the special interests that want continued ethanol handouts. Jillian Kay Melchior explains for National Review.

One of the most destructive environmental subsidies in the United States has found an enthusiastic supporter in Donald Trump. “The EPA should ensure that biofuel . . . blend levels match the statutory level set by Congress,” he said yesterday in Iowa, adding that he was “there with you 100 percent” on continuing federal support for ethanol. …federal support for ethanol is a bum deal for Americans. Under the 2007 Independence and Security Act, Congress mandated that the United States use 36 billion gallons of biofuels, including corn ethanol and cellulosic biofuel, by 2022. And the federal government not only requires the use of ethanol; it also subsides it. Tax credits between 1978 and 2012 cost the Treasury as much as $40 billion. Moreover, numerous other federal programs, spanning multiple agencies, allot billions of dollars to ethanol in the form of grants, loan guarantees, tax credits, and other subsidies. …Ethanol-intensive fuel blends can wreak havoc on car, lawnmower, and boat engines. In fact, many vehicle manufacturers will no longer offer warranties when ethanol comprises 10 percent or more of fuel; engine erosion simply becomes too common. …perhaps it’s not surprising that Trump likes federal support of ethanol. After all, the real-estate mogul’s business model has historically hinged on using tax abatements and other subsidies to make his building projects profitable. …Trump’s support for ethanol belies his populist Main Street rhetoric. In reality, he’s just another rich, East Coast politician who would prop up special interests at the expense of the taxpayer.

The bottom line is that ethanol handouts are one of the most notoriously corrupt subsidies that are dispensed by Washington.

They also violate my Bleeding-Heart Rule by imposing costs on lower- and middle-income people to reward politically connected fat cats with deep pockets.

Policy makers who oppose ethanol deserve praise, especially when they are willing to say and do the right thing in a state (like Iowa) that has a lot of recipients of this execrable form of corporate welfare.

P.S. I will get really excited if a candidate goes to Iowa and explains that we should get rid of the entire Department of Agriculture.

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Remember the cluster-you-know-what in New Orleans following Hurricane Katrina? Corrupt and incompetent politicians in both the city and at the state level acted passively, assuming that Uncle Sam somehow should be responsible for dealing with the storm.

And we’ve seen similar behavior from other state and local politicians before, during, and after other natural disasters.

The obvious lesson to be learned is that the federal government shouldn’t have any responsibility for dealing with natural disasters. All that does it create a wasteful layer of bureaucracy, while also inculcating a sense of learned helplessness on the part of state and local officials who should be responsible for dealing with storms and other local crises.

In other words, the answer is federalism. State and local governments should be solely responsible for state and local issues.

But not just because of some abstract principle. There’s a very strong practical argument that you get more sensible decisions when the public sector is limited (as Mark Steyn humorously explained) and there is clear responsibility and accountability at various levels of government.

And this is why the biggest lesson from the scandal of tainted water in Flint, Michigan, is that local politicians and bureaucrats should not be able to shift the blame either to the state or federal government. Which was my main point in this interview.

To be sure, it is outrageous that state and federal bureaucrats knew about the problem and didn’t make it public, so I surely don’t object to officials in Lansing and Washington getting fired.

But I do object to the political finger pointing, with Democrats trying to blame the Republican Governor and Republicans trying to blame the Democratic President.

Nope, the problem is an incompetent local government that failed to fulfill a core responsibility.

The Wall Street Journal has the same perspective, opining that the mess in Flint is a failure of government.

…the real Flint story is a cascade of government failure, including the Environmental Protection Agency.

More specifically (and as I noted in the interview), we have a local government that became a fiefdom for a self-serving bureaucracy that was more concerned with its privileged status than in providing core government services.

…after decades of misrule: More than 40% of residents live in poverty; the population has fallen by half since the 1960s to about 100,000. Bloated pensions and retiree health care gobble up about 33 cents of every dollar in the general fund.

And the WSJ editorial also castigated the state and federal bureaucrats that wrote memos rather than warning citizens.

MDEQ and the EPA were chatting about Flint’s system as early as February. MDEQ said it wanted to test the water more before deciding on corrosion controls, though it isn’t clear that federal law allows this. …the region’s top EPA official, political appointee Susan Hedman, responded… “When the report has been revised and fully vetted by EPA management, the findings and recommendations will be shared with the City and MDEQ and MDEQ will be responsible for following up with the City.” She also noted over email that it’s “a preliminary draft” and it’d be “premature to draw any conclusions.” The EPA did not notify the public.

The lesson is that adding state and federal bureaucracy impedes effective and competent local government.

The broader lesson is that ladling on layers of bureaucracy doesn’t result in better oversight and safety. It sometimes lets agencies shirk responsibility for the basic public services like clean water that government is responsible for providing.

Here’s the bottom line.

Federalism is about getting better government by creating clear lines of responsibility and accountability in an environment that allows state and local governments to learn from each other on best practices.

The current system blurs responsibility and accountability, by contrast, while also imposing needless expense and bureaucracy. And we get Katrina and Flint with this dysfunctional approach.

So whether it’s Medicaid, education, transportation, welfare, or disasters, involvement from Washington makes things worse rather than better.

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This isn’t intentional, but there’s been a European theme to this week’s posts. I wrote yesterday about economic chaos in France, and the previous day I wrote about the grim consequences of Italian statism.

Today, we’re going to look at Greece. In the past, I’ve explained that Greece is special, albeit in a bad way. But I’ve also asserted that Greece could be rejuvenated and could deal with its debt with the right reforms.

Heck, Greece could even renege on its debt and still enjoy an economic renaissance if it adopted the right policies. That’s the message of this short video narrated by Garett Jones of George Mason University

So the $64 question (actually, the $231,199,453,552 question according to the latest projection of Greek debt) is whether Greece will do the right kind of reform.

Unfortunately, it appears that all the bailouts have subsidized bad policy. Writing for National review, a journalist from Greece explains that his government is adding more and more taxes onto an overburdened private sector.

…the new austerity measures, which are often amusingly termed reforms, are for the most part tax increases — which may not be popular, but which conform to SYRIZA’s ideological creed. The new package agreed to by SYRIZA and Greece’s creditors is about 90 percent new taxes or tax increases and 10 percent reforms. The tax increases have the benefit of protecting SYRIZA’s core constituency, which is the public-sector employees. Despite the collapse of public revenue and the overall dismal economic outlook, the SYRIZA government plans to increase the salaries of public-sector employees (by as much as 8 percent) and carry on with 45,000 new hires in 2016. Meanwhile, in the private sector, SYRIZA has increased taxes on all sorts of things and is planning to double the taxation of farmers. It has increased business taxes and also demanded the pre-payment of business taxes. It has increased the VAT on almost all goods, and it is defining affluence down so as to increase income taxes for a greater number of taxpayers. And although Greece has probably the highest social-security contributions in Europe, SYRIZA is planning to increase these contributions even more, despite the fact that pensioners now outnumber those who are still employed in the private sector.

More pensioners that private-sector employees?!?

Wow, even I’m shocked by that factoid. There definitely are far more people riding in the wagon than pulling the wagon when you add up pensioners, bureaucrats, and welfare recipients.

So you can understand why Greece is almost surely doomed.

Especially when you consider that many of the people leaving Greece are the productive ones (i.e., those who normally would be pulling the wagon). Here are some passages from a story in the New York Times from last year.

From 2010 to 2013, about 218,000 Greeks emigrated, according to an estimate from the Greek statistics agency. Nearly half of them went to Germany. …Resentments against Germany — Greece’s most powerful creditor — quickly fade when it comes to the prospect of a regular paycheck. Many of those leaving Greece are highly educated professionals and scientists seeking greater opportunity and better pay. An estimated 135,000 Greeks with post-secondary degrees have left since 2010 and are working abroad, according to Lois Labrianidis, an economic geographer and official in Greece’s Economy Ministry. “We think this is human capital that is crucial for the development of the country,” Mr. Labrianidis told me recently, calling the departures a “major blow.” …While much of the attention on recent Greek emigration has focused on the highly educated, I’ve been surprised by the number of working-class Greeks I’ve met who left due to financial desperation.

But there’s one group of people who aren’t leaving.

You probably won’t be surprised to learn that they are the bureaucrats. As noted in this report from the U.K.-based Telegraph, their privileged position is zealously protected by vote-buying politicians.

The other thing most people in the area seem to agree on is that the biggest impediment to progress is the size of Greece’s public sector. The country has a population of 10 million, of which 2.5 million are pensioners, one million are government employees and two million work in the private sector. A further 1.7 million are unemployed. The rest are children or students. “So you can see why the current situation is unsustainable,” says Tryfon. “The only solution is for the public sector to be cut back. But every government since the crisis has chosen to raise taxes, while doing little to stimulate the private sector because they only want to protect votes.” “…Public sector employees and pensioners are the first to get paid and the only ones to get paid on time. We need investment into the private sector, but there is no motivation for companies to come to Greece…” a company would be nuts to invest in a politically unstable country, creaking under debt and crippled by an incredibly punitive tax regime. “What business will invest in a Greece when it takes six months to set up a company compared to Cyprus where it takes 15 minutes?” asks Dimitris Karkavitsas, an investment banker-turned-strawberry farmer. …the young engineer, says everyone who tries to make it in the private sector gets strangled. “The tax is killing us,” he says. …In the meantime, the public sector remains a massive beast.

Moreover, when you set up a company in Cyprus, there’s never a risk that you’ll be required to provide disgusting forms of DNA  as part of bureaucratic requirements.

Yet rather than be outraged by overpaid and meddlesome bureaucrats, I suspect most Greeks probably think how they can get on that gravy train. Which explains why, in an interview, I said the Greeks shouldn’t be allowed to “loot and mooch their way through life.”

Until and unless they learn that lesson, the nation is doomed to societal collapse.

P.S. Another sign of Greece’s moral and fiscal bankruptcy is that pedophiles can get disability payments.

P.P.S. To offset the grim message of today’s column, let’s also enjoy some Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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